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IN DEGREE PROJECT INDUSTRIAL ENGINEERING AND MANAGEMENT,SECOND CYCLE, 30 CREDITS

, STOCKHOLM SWEDEN 2017

Critical Factors to Consider in Purchasing for a Sustainable Inbound Supply ChainA Perspective on Large Scale Lithium-ion Battery Manufacturing

IDA CARLSSON

MARIA PIRTTINIEMI

KTH ROYAL INSTITUTE OF TECHNOLOGYSCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT

Critical Factors to Consider in Purchasing for

a Sustainable Inbound Supply Chain

A Perspective on Large Scale Lithium-ion Battery

Manufacturing

Master Thesis

Written by:

Ida Carlsson & Maria Pirttiniemi

Master of Science Thesis INDEK 2017:54KTH Industrial Engineering and Management

Industrial ManagementSE-100 44 STOCKHOLM

Kritiska faktorer att ta hansyn till i

inkopsprocessen for en hallbar vardekedja

Ett perspektiv pa storskalig litiumjonbatteritillverkning

Examensarbete

Skrivet av:

Ida Carlsson & Maria Pirttiniemi

Examensarbete INDEK 2017:54KTH Industriell teknik och managementIndustriell ekonomi och organisation

SE-100 44 STOCKHOLM

Master of Science Thesis INDEK 2017:54

Critical Factors to Consider in Purchasing for a Sustainable Inbound Supply Chain

- A Perspective on Large Scale Lithium-ion Battery Manufacturing

Ida Carlsson

Maria Pirttiniemi Approved

2017-06-15 Examiner

Lars Uppvall Supervisor

Andreas Feldmann Commissioner

Northvolt AB Contact person

Paolo Cerruti

Abstract

Together with electrification of the transportation sector and the introduction of renewable energyin the electricity grid, the demand for lithium-ion batteries is increasing. As a result of this emergingneed, large-scale battery manufacturing is a promising and developing industry. Currently, there exista challenge for lithium-ion battery manufacturers to ensure supply of the desired material and toguarantee operation in a sustainable manner. The material included in a battery cell possess uniquecharacteristics, has high criticality, and experience limited availability, which has resulted in an un-certain business environment with high complexity. Hence, the aim of this thesis is to investigate howunique material characteristics aect the purchasing environment and can be considered to obtaina sustainable inbound supply chain for lithium-ion battery manufacturers. The study is based onthe following research question; How can purchasing of critical direct material for lithium-ion batterymanufacturers support a sustainable inbound supply chain?

This research is performed in collaboration with Northvolt AB, a company that plans to build Eu-ropes largest lithium-ion battery manufacturing facility in 2018. Based on two approaches, onefocusing on the technical context of lithium-ion batteries and one focusing on the related purchasingenvironment, this study explores how dierent critical material aects the supply risk. Assessment ofimportant sustainability factors, as well as development of possible supply risk mitigation strategiesare performed based on multiple interviews conducted with industry experts. A central contributionof this exploratory research is the theoretical assessment of material criticality in purchasing, as well asthe empirical description of the existing challenges lithium-ion battery manufacturers are facing today.

It is concluded that lithium-ion battery manufacturers are operating in a unique context by being ex-posed to potential supply disruptions that have severe impact on the operation. This study indicatedthat 65 percent of the material in lithium-ion batteries are ranked with high strategic importance,due to high profit impact while suering from severe supply risk. It is recommended that Northvoltand other lithium-ion battery manufacturing companies implement risk mitigation strategies to guardagainst potential disruptions. This research specifically highlights vertical integration and establish-ment of long-term agreements with significant actors, as the most prominent ones. It is additionallyrecommended to include sustainability considerations in the material and supplier selection process,in order to obtain a sustainable inbound supply chain.

I

Examensarbete INDEK 2017:54

Kritiska faktorer att ta hnsyn till i inkps-processen fr en hllbar vrdekedja

- Ett perspektiv p storskalig litiumjon-batteritillverkning

Ida Carlsson

Maria Pirttiniemi Godknt

2017-06-15 Examinator

Lars Uppvall Handledare

Andreas Feldmann Uppdragsgivare

Northvolt AB Kontaktperson

Paolo Cerruti

Sammanfattning

I samband med elektrifiering av transportsektorn och en vaxande andel fornyelsebar energi i detbefintliga elnatet, okar aven behovet av litiumjonbatterier. Till foljd av denna utveckling ar storskaligbatteritillverkning helt nodvandigt och en industri som utvecklas i snabb takt. Det okande antaletbatteritillverkande foretag, i kombination med ett begransat utbud av de batterispecifika materialenhar dock lett till en obalanserad marknad. Flertalet av de ingaende materialen ar kritiskt rankade ochav unik karaktar, vilket utgor en utmaning for batteritillverkare att sakerstalla materialanskaningpa ett hallbart satt. Malet med denna studie ar att undersoka hur de olika kritiska direktmaterialenoch dess karaktarer paverkar inkopsprocessen, samt vilka faktorer som maste tas hansyn till for attsakerstalla en hallbar vardekedja. Studien baseras pa foljande forskningsfraga; Hur kan inkop av kri-tiska direktmaterial stodja en hallbar vardekedja for litiumjonbatteritillverkare?

Denna studie ar genomford i samarbete med Northvolt AB, ett foretag som planerar att bygga Eu-ropas storsta batterifabrik med byggnadsstart ar 2018. Studien baseras pa tva olika fokusomraden,dels den tekniska kontexten relaterat till litiumjonbatteritillverkning och dels inkop av de ingaende ma-terialen. Arbetet undersoker hur de olika materialen bidrar med inkopsrisk, samt hur dessa paverkarvardekedjan ur ett hallbarhetsperspektiv, bade utifran en miljomassig och en social aspekt. Flertaletintervjuer med experter har genomforts, vilket har resulterat i en sammanstallning av materialklas-sificering med tillhorande lampliga inkopsstrategier. Ett centralt bidrag med detta arbete ar denteoretiska bedomningen som gjorts av de ingaende kritiska materialen i en litiumjonbattericell, samtden empiriska beskrivningen av de utmaningar som industrin star infor idag vad galler inkop av kri-tiskt direktmaterial.

Studien konstaterar att litiumjonbatteritillverkare verkar i ett unikt foretagsklimat, genom att vara ut-satta for betydande risker som kan ha omfattande konsekvenser. Den genomforda analysen visar pa att65 procent av de ingaende materialen kan klassificeras som strategiskt viktiga da de har stor ekonomiskinverkan samt ingar i en vardekedja som ar utsatt for betydande risker. Slutligen, rekommenderasNorthvolt och liknande batteritillverkande foretag att implementera strategier for att minimera denpotentiella inkopsrisken. Okad vertikal integration, samt etablering av langsiktiga overenskommelsermed externa aktorer ar det som visat sig vara mest relevant. Dessutom bor hallbarhetsaspekter inklud-eras tidigt i inkopsprocessen, redan vid urval av bade material och leverantorer for att sakerstalla enhallbar vardekedja.

II

Contents

List of Figures V

List of Tables VI

1. Introduction 11.1. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1.1. Increasing Demand for Lithium-ion Batteries . . . . . . . . . . . . . . . . . . . 11.1.2. Large-Scale Lithium-ion Battery Manufacturing . . . . . . . . . . . . . . . . . . 2

1.2. Problematization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.3. Objective and Research Question . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.4. Scope of Thesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.5. Disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2. Purchasing of Critical Material 62.1. Material Purchasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.2. Classification of Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.3. Profit Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2.3.1. Percentage of Total Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.3.2. Business Importance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2.4. Supply Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.4.1. Material Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.4.2. Supply Market Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.4.3. Geopolitical Supply Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122.4.4. Purchasing Flexibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

2.5. Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142.5.1. Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152.5.2. Social Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

2.6. Supply Risk Mitigation Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172.6.1. Internal Risk Mitigation Strategies . . . . . . . . . . . . . . . . . . . . . . . . . 172.6.2. External Risk Mitigation Strategies . . .

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